Did Louisiana's state-tax exemption for LASERS retirement benefits extend to distributions from new DROP self-directed sub-accounts managed by a third-party provider?

Plain-English summary

Benefits paid from the new LASERS DROP self-directed sub-accounts were exempt from Louisiana state taxation.

The accounts remained within the Deferred Retirement Option Plan and the LASERS trust. Although a third-party provider managed them, that provider acted as LASERS's agent and could distribute funds only under the governing Title 11 provisions.

Why the exemption followed the funds

La. R.S. 11:405 exempted benefits paid under Chapter 1 of Title 11 from state or municipal tax. Act 818 placed the new self-directed sub-account provisions within that chapter.

The initial sub-account balance transferred to the self-directed sub-account after the contribution period. The ruling emphasized that the funds could not be commingled with other sources, remained in the LASERS trust, and required LASERS approval for distributions.

Common questions

Q: Did third-party management end the exemption?

A: No. The provider acted as an agent of LASERS.

Q: Did the self-directed account leave DROP?

A: No. Both the initial and self-directed sub-accounts were within DROP.

Q: What payments were covered?

A: Benefits distributed from the self-directed sub-accounts under the cited Chapter 1 provisions.

Q: When did the statutory changes take effect?

A: January 1, 2004.

Citations and references

• La. R.S. 11:405 — state and municipal tax exemption for covered benefits
• La. R.S. 11:447-451.4 — DROP and self-directed sub-account provisions
• Act 818 of the 2003 Regular Session
• LAC 61:III.101.C — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 03-008

Original ruling text

Revenue Ruling
No. 03-008
December 22, 2003
Individual Income Tax and Fiduciary Income Tax
State Tax Exemption for Deferred Retirement Option Plan Self-Directed
Sub-Accounts
This revenue ruling addresses the applicability of the state tax exemption for Louisiana State
Employees’ Retirement System plans to the new self-directed sub-accounts within the Deferred
Retirement Option Plan.
Act 818 of the 2003 Regular Session of the Louisiana Legislature amended and reenacted several
provisions of Chapter 1, Title 11 of the Louisiana Revised Statutes of 1950 relative to the Deferred
Retirement Option Plan (DROP) of the Louisiana State Employees’ Retirement System (LASERS).
These amendments create and provide for the administration of self-directed investment subaccounts in DROP. The provisions of Act 818 will become effective on January 1, 2004.
After January 1, 2004, a DROP participant’s contributions will be credited to the participant’s subaccount. La. Rev. Stat. Ann. § 11:449(A). Once the contribution period ends, the balance of the
participant’s sub-account will be transferred to a self-directed sub-account. La. Rev. Stat. Ann. §
11:449(A)(2). Both the initial sub-account and the self-directed sub-account are within DROP. La.
Rev. Stat. Ann. § 11:449(B). When the funds are transferred to the self-directed sub-account for the
investment period, LASERS is authorized to hire a third party provider who shall be an agent of
LASERS. La. Rev. Stat. Ann. § 11:449(B). Distributions from the self-directed sub-accounts, just
like distributions from the current DROP sub-accounts, can only be made as either a lump sum
payment from the account equal to the amount in the sub-account or as systematic disbursements
from the sub-account. La. Rev. Stat. Ann. § 11:450(A)(1).
The self-directed sub-accounts will be managed by the third party provider in accordance with an
agreement between the provider and LASERS. La. Rev. Stat. Ann. § 11:451.1. LASERS is in the
process of soliciting bids from potential third party providers (TPAs) to manage the self-directed
sub-accounts. The Solicitations for Offers for the TPAs provides that all distributions from the subaccounts must be approved by LASERS, that the sub-accounts cannot be commingled with funds
from any other source, and that all funds in the sub-accounts must remain within the LASERS trust.
Section 11:405 of the Louisiana Revised Statutes provides for a state tax exemption for benefits
paid under the provisions of Chapter 1, Title 11.
§ 405 Exemption from execution; exception. Any annuity, retirement allowance or
benefit, or refund of contributions, or any optional benefit or any other benefit paid
or paid to any person under the provisions of this Chapter is exempt from any state
or municipal tax and is exempt from levy and sale, garnishment, attachment, or any
other process whatsoever, except as provided in R.S. 11:292, and is unassignable.
Chapter 1, Title 11 of the Louisiana Revised Statutes of 1950 is comprised of Sections 401 through

606. Act 818, which created the self-directed sub-accounts, amended and reenacted La. Rev. Stat.
     A Revenue Ruling is written to provide guidance to the public and to Department of Revenue employees. It is issued under
     Section 61:III.101(C) of the Louisiana Administrative Code to apply principles of law to a specific set of facts. A Revenue
     Ruling does not have the force and effect of law and is not binding on the public. It is a statement of the department's position
     and is binding on the department until superseded or modified by a subsequent change in statute, regulation, declaratory
     ruling, or court decision.

Revenue Ruling 03-008
Page 2 of 2
Ann. §§ 11:447, 448(A), (C), and (D), 449, 450(B), (D)(3) and (4) and 451, and enacted La. Rev.
Stat. Ann. §§ 11:450(A)(3) and (D)(6), 451.1, 451.2, 451.3 and 451.4, all of which are in Chapter 1
of Title 11. The self-directed sub-accounts will be administered by LASERS through a third party
agent. The third party agent can only make distributions from these accounts in accordance with the
provisions of La. Rev. Stat. Ann. §§ 11:447 through 451.4. Therefore, benefits paid from the selfdirected sub-accounts are benefits paid under the provisions of Chapter 1 of Title 11 and are exempt
from state taxation.
Cynthia Bridges
Secretary
By:

Leonore Heavey
Attorney
Policy Services Division